- Introduction
Meetings are the only solutions for the shareholders of the corporations for interaction with the board in respect of matters of their concern as they are not entitled to take part in the internal affairs of the corporations. With is backdrop, increased shareholder activism has resulted in their calling for special meetings with board in addition to the annual general meetings which are traditional means of interaction with the board for the shareholders. Shareholders are able to speak with the managers and the board members in regard to the company results and its long-range plans only through special and annual general meetings. This report outlines the advantages and various complex issues arising out of interaction between the members and shareholders. Such an interaction has been quite popular in Australia which the corporate shareholders have utilized only to register their opposition rather than constructive participation.
Part 1
II. The current legislative regime of mandatory AGM for listed public companies.
It is mandatory for all public companies to hold an AGM every once in twelve months. It should be held within 5 months after the lapse of the accounting period of the companies. The ASC has the authority to grant extension of time to hold AGM. The AGM has various purposes of providing shareholder engagement with the company and serves as a mechanism of accountability on the part of those in control of the companies to the shareholders, the ultimate owners. Thus, AGM is a forum for reporting, questioning, deliberating, and decision making. As per section 317, a corporation must report publish an Annual Report to communicate to the members about the various issues, both favourable and adverse, faced and experienced by it. The report is circulated to the members in the AGM and thus the AGM is the immediate platform for the members to voice their concerns as well as appreciate the good features including the company’s management, directors’ and other senior officers’ remuneration, and the company’s audit by virtue of ss 250 PA-250T. Shareholders are entitled to vote on board members’ salaries, reports by the directors and auditors and election of directors vide ss 250 (R02, (3) , s 250 R (a) and s 250 R (1) a. The shareholders’ vote on the remuneration report which was only advisory is now binding ever since the “two-strike” law came into force. By invoking this rule, the members can remove the directors by “simple majority” and opt for the re-elections provided there are at least twenty five percent negative votes for the remuneration report. Auditor’s appointment and remuneration also are to be approved by the members in the AGM as per s 250 R (1) (c),(d). Shareholders can also move resolutions in the AGM to amend the company’s constitution, change the share-holding pattern and to dismiss directors as per ss 136, Chapter 2J and s 203 D. Shareholders do not have any other rights both in the Annual General Meeting as well as in any other manner for giving directions to the board.
III The court’s understanding of the relevance and essentiality of the Annual General Meeting as observed in the case The South British Insurance Company Ltd (1980).
The case involves the company’s minority shareholders likely attempt to stall the conduct of their forthcoming annual general meeting (AGM) in 1980 as in the past in 1979 and the company’s application in the High Court of New Zealand to exercise the court’s power as per section 139 of the N.Z. Companies Act 1955 for the manner in which the AGM should be conducted as the court deemed fit. With this background, the High Court of New Zealand observed that annual general meeting of the shareholders was an important event as it was not only an important statutory obligation of the company to conduct the meeting but also a contractual requirement by means of the Articles of Association to do so. In view of these requirements and the court agreed that section 139 of the NA Companies Act 1955 rightly provided for the Court’s intervention in the matter to ensure proper conduct of the AGM.
Part 2
IV. The Debate of the Future of the AGM as per the CMAC (September 2012) and Parliamentary Joint Committee on Corporations and Financial Services (June 2008).
- CMAC : In spite of all the claims about the usefulness and inevitability of the AGM, it has been argued whether the AGM in its present form has served the originally intended purposes. It is because of development of information technology facilitating greater access to information to all the shareholders have led to relatively low attendance rates at the AGM. The present purposes of the AGM are for the functions such as reporting, questioning and deliberative and decision –making functions. With the highly developed informational technology, question arises whether the AGM should continue to serve the above said functions, some of the functions or should be dispensed with at all. The CMAC suggests the future role and functions of the AGM under different options. First option : AGM should be held only for discussion and voting on the remuneration report, election of directors and other resolution on the agenda. This should be counterbalanced by making various reporting requirements as statutory obligations or best practice guidelines so as to ensure that the shareholders right to reports and right to question are safeguarded. This would enable the shareholders to exercise their questioning right on a continuous basis instead of questioning ay the AGM by which time it may be too late. Second option: While all the present functions of the AGM can remain, the decision making function may be carried out later at the appropriate time after the meeting is over. Option 3 is some other adjustment to the current functions of the AGM. Instead of the present ‘one size fits all’ approach through the AGM, there should be a more flexible system since relevance of the AGM differs among companies. Fourth option is to do away with the requirement of AGM itself, the reason being most resolutions are determined by proxy votes and emerging institutional investors. Resolutions can still be determined by the electronic voting of the shareholders.
- Parliamentary Joint Committee on Corporations and Financial Services (June 2008).
The Committee in its one of the recommendations suggested that the Government should amend section 314 of the Corporations Act for removal of the requirement to furnish a brief financial company report. The committee conceded that AGM was an important forum for the retail shareholders to engage directly with the board and the executive management but added that relevance of the AGM as a forum was diminishing in view of reduced AGM attendances. However, the committee reported having received a number of suggestions to revive the importance of the AGM. There was a suggestion that the falling AGM attendances might be due to strong company results and also as the shareholders felt that voting was being decided in advance through proxies and due to continuous disclosure . It was felt that shareholder activism diverted attention from the traditional agenda of the AGM dominated by special interest groups. Yet, it was maintained that the retail shareholders still relied on the AGM and other meetings as a forum for engagement. It was suggested that formal voting and informal dialogue functions be separated out in order to improve the relevance of AGM as a source information. Thus, voting must take place after the close of the meeting in order to ensure that the shareholders were benefited by discussion and questioning during the AGM. Some more changes contemplated were 1. Mandatory minimum duration for discussion and questioning at AGMs. 2. Extending the statutory time limit for holding AGMs by one month in order reduce the congestion during the AGM season. 3. Encouraging the board committees to respond to the questions of the shareholders at the AGM. 4. Inviting questions from the shareholders in advance before the meeting schedule..
V. Current regime of Shareholder Requisition of Member Meetings.
Under section 249 D, members with at least 5 % of the votes eligible to be cast at a general meeting or at least 100 members entitled to vote at a general meeting may request that the directors of the company call and hold a general meeting at the cost of the company.
Section 249 (F) 1 stipulates that members with at least 5 % of the votes that can be exercised at a general meeting are entitled to independently call for a general meeting of members. The members calling for the meeting have to bear the expenses for convening the meeting. Sections 249 F (2) and (3) require that the meeting must be convened in the same manner as general meetings of the company are called and the percentage of voting capacity of the members must be calculated as at midnight before the meeting. The meeting called for by the members under section 249 (F) may be postponed by the directors subject to the provisions of the company’s constitution which provide for the postponement by the directors. And the postponement must be in the interests of the company and not for the self serving interests of the directors as held in Pinnacle VRB Pty Ltd v Ronay Investment Pty Ltd (2000) 18 ACTL 733.
VI. The Court’s understanding of the purpose of Member Meetings and its possible invalidity.
NRMA v Parker (1986) NSWLR 517
The general impression that members and shareholders of a corporation may use the forum of the AGM to air their grievances and move motion on any matter in which the Board and management of the corporation may be involved is not correct. It is not correct in view of the modern context of conduct of the AGMs. It is argued that members’ right to question the Board is not unlimited in view of the provision that the chair may reject the motion of the members on floor if so provided for by the company’s constitution. In NRMA Ltd v Parker (1986) it has been decided that members cannot move a resolution if the subject matter of the resolution is under the exclusive domain or powers of the management. As such, the members will be generally left with the powers to remove and appoint directors or to amend the constitution etc.
VII. Whether the rules relating to shareholder requisition of member meetings should be changed?
In this connection it will be appropriate to consider the CMAC’s final report of June 2000 on the Shareholder Participation in the Modern Listed Public Company and Parliamentary Joint Committee on Corporations and Financial Services Report of 2008 entitled “ Better shareholders – Better company- shareholder engagement and participation in Australia.
- The CMAC in its final report has issued several recommendations which should result change of rules governing the shareholders requisitioning of member meetings. They are : only shareholders collectively having at least 5 % of the total votes that can be exercised at a general meeting should be entitled to requisition a general meeting of a listed public company. Although the threshold of 100 shareholders required to move resolutions at meetings can remain, each of the shareholders should hold shares worth at least $ 1000. If there is no requirement in the listing rules for three months’ notice to the concerned exchange, such a requirement should be made a part of Corporations Law. Shareholders should be entitled to appoint body corporate as their proxy. The corporate proxy so appointed should not fail to vote on any poll. All polling results for resolutions should be entered in the minutes of the meeting in terms of the votes cast for, against and abstentions. The shareholders having at least 5 % of issued voting shares should be eligible to inspect proxy documentation for 48 hours after the meeting is over. The director should be empowered to enable absentee voting by postal or electronic means any matters considered at a general meeting as an alternative to proxy or personal voting. Some of these proposals have been since implemented. The amendments recommended are the need of the hour in view of the technological improvements and increasing number of institutional investors.
- Parliamentary Joint Committee Report (June 2008).
Shareholders’ requisitioning of member meetings reflects the shareholders right to voice their concerns about the affairs of their company. The Parliamentary Joint Committee envisaged shareholder engagement and participation to achieve better shareholders and better company. The committee in its report have suggested measures to remove barriers for the effective participation of all shareholders in the governance of companies. The best practice guidelines include pre-selection and nomination of director contestants, presentation of ballot papers, voting arrangements by proxy and direct voting and the conduct of Annual General Meetings. The committee’s report issued recommendations that would entail significant changes in rules for requisitioning of the member meetings by the shareholders.
VIII Conclusion
In view of the improvements in communication technology, it is being suggested that the AGM can be altogether dispensed with as continuous disclosures are enabled. However, the AGM is the only forum by which the shareholders can come face to face with the management of the company. If meetings are dispensed with, there will be total disconnect between the stakeholders and the management. Hence, it is all the more essential to change rules for hassle free requisitioning of the member meeting by the shareholders.
IX. Reflection
The meetings of members are lifeline of the corporate governance. Hence, the present rules regarding requisitioning of the meeting of members by the shareholders should be further relaxed so that it will be a moral check on the Board signifying that the ultimate owners should have some leverage in the control of affairs of their companies.
References
CMAC. (2012). The AGM and shareholder engagement. Sydney: Corporations and Markets Advisory Committee.
CMAC. (2013). The AGM and Shareholder Engagement; Discussion paper. Corporations and Markets Advisory Committee .
McCombe, J. (2004). CENTRE FOR CORPORATE LAW AND SECURITIES REGULATION. Corrs Chambers Westgarth.
PJC. (2008). Better shareholders – Better company, Shareholder engagement and participation in Australia. Canberra: Parliamentary Joint Committee (PJC) on Corporations and Financial Services.
Tonello, M. (2013). Global Trend in Board-Shareholder Engagement . The Harvard LAw School Forum on Corporate Governance and Financial Regulation .
TressCox. (2013). What is "proper AGM business".
